Prepare for the worst

At this time of year, with shorter days and plummeting temperatures, I often day-dream about buying a place in the sun where I can while away my days. I'm not alone, indeed many Brits are 'living the dream', having taken the plunge and purchased a property overseas. What is perhaps surprising is the number of people still contemplating buying property overseas, despite the recent economic downturn and widely-reported problems with foreign property values.

Last year, one of the high street banks conducted research and found that 5.4m Britons were considering buying abroad, even more than before the financial crisis. Of these, nearly 600,000 said they would definitely buy a second property overseas. Spain and the Balearic islands are the preferred destinations, appealing to 30 per cent of British buyers according to the survey. Thereafter, France attracts 16 per cent and Italy 9.5 per cent. Portugal, Greece, Cyprus, the Caribbean, Florida and Turkey are also popular.

I am increasingly advising clients who have or who are looking to acquire property overseas. I can’t provide advice on the local legal processes of course, but I can help identify what issues they need to consider when buying foreign property. The starting point is always to instruct a good local lawyer, but there are other points which a UK-based adviser should flag, some more obvious than others; checking that the seller has title to the property, that all planning consents are in order and making a local will to deal with succession issues which may differ in the local jurisdiction.

So far, so familiar. However something that advisers may not necessarily think about is whether their client should consider making a power of attorney in the country where the property is located. We’re all pretty good at educating our clients about making lasting powers of attorney (LPA) here, but do we always think about it in the context of overseas assets, whether real or moveable property? 

When you think about it, it really is a no-brainer. You advise your client to make a will to deal with what happens if they die owning overseas property, but what happens if they are incapacitated at some point, whether permanently or temporarily? 

With an aging population, this is a real risk. 

It is easy to assume that an LPA made in England and Wales will be recognised overseas, however this isn’t necessarily the case and it varies from one country to another. Whether powers of attorney are recognised in another country will depend upon the laws of that country; legal advice will therefore be required in the relevant country. There are certain European countries, such as France, which have signed up to Hague 35, a convention enabling automatic recognition of powers of attorney made in other countries which have also signed up to the convention. However, England and Wales have not ratified Hague 35 (but Scotland has). 

Where automatic recognition under the convention is absent, the laws of an individual’s habitual residence might assist in determining whether the country where the property is held will recognise a power of attorney made in England and Wales. However, if a client starts to spend more time overseas, perhaps retiring to the second home, there may be a question over his or her habitual residence. 

The fact is that foreign institutions, banks in particular, are often very nervous about acting upon a foreign power of attorney without the involvement of lawyers to confirm its validity. This could be done by each party to the document signing before a notary and the affixing of an apostille. 

The answer is that UK advisers should suggest to their clients that they make an LPA, or the local equivalent, whenever acquiring overseas property. 

The benefit of an LPA is that the individual making it has control over who will manage their assets should they become unable to do so themselves. The rationale is no less compelling when the assets in question are overseas. For advisers to clients with foreign property, it is essential that this is added to the checklist. 

Your clients will thank you for it.

Fay Copeland is partner and head of private client at Wedlake Bell

She writes the regular comment on inheritance in Private Client Adviser